Which metric helps to analyze inventory efficiency?

Inventory turnover is a critical metric for analyzing inventory efficiency as it measures how often inventory is sold and replaced over a specific period. A higher inventory turnover indicates that a company is efficiently managing its stock and selling products quickly, which minimizes holding costs and reduces the risk of obsolescence. This metric provides insight into how well inventory is being converted into sales, allowing businesses to assess their inventory management practices.

While cost of goods sold is important for understanding overall costs associated with goods available for sale, it does not directly measure how efficiently inventory is being managed. Similarly, sales margins focus on profitability rather than inventory flow, and cost per square foot relates to space usage rather than inventory performance. Thus, inventory turnover stands out as the most relevant measure for evaluating how effectively a business is managing its inventory in relation to sales.